I got abnormally excited when I saw Susan’s post about the Brazillian cotton case, as it relates to both my undergraduate thesis and my student note.  So, I felt the need to note a few quick things for the fellow WTO nerds out there.

Brazil can’t get countermeasures when the U.S. has already complied.  My undergraduate thesis tried to determine why the United States (seemingly against its own interests) complied with a WTO decision ruling U.S. “Step 2″ cotton subsidies illegal.  So, I was surprised to see that Brazil recently sought countermeasures from the U.S. because they didn’t comply with the Step 2 decision.  Huh?  Was my thesis all wrong?!  As it turns out, Brazil admitted that the U.S. repealed the Step 2 program a few years ago.  Nevertheless, they tried to ignore one of the basic principles of WTO law: there’s no such thing as retroactive countermeasures.  Essentially, Brazil argued that the U.S. did not repeal its Step 2 program fast enough and should be punished.  But the arbitrators reminded Brazil that countermeasures are meant to induce compliance, not punish others.  Since the U.S. had already complied (even though it was tardy compliance), Brazil couldn’t be awarded any goodies.

Brazil can probably force the United States to cough up GSM-102 numbers.  Susan asked what sort of powers Brazil has to make the U.S. cough up numbers about its export subsidies.  I’m guessing its powers are substantial, as the WTO arbitrator specifically included in its report a demand that the U.S. provide such figures:

The United States shall provide the most recent fiscal year data on GSM 102 transactions.  The data on GSM 102 transactions by commodity and by obligor shall be supplied in the exact format (and software) as Exhibit US-78. Should the United States not be able to provide the most recent fiscal year data on GSM 102 transactions, Brazil shall use the data from the last available fiscal year.

I’m not aware of any specific sanction for failing to comply with a WTO arbitrator’s decision.  Article 25.4 of the DSU says that Articles 21 and 22 (which are the important sections about compliance) apply mutatis mutandis to arbitration.  Maybe this means that you can impose sanctions when a member doesn’t comply with an arbitrator’s demand?  Nevertheless, I am sure that the WTO (as a body) would take action if the U.S. does not fork over the numbers requested by Brazil. 

TRIPS-based sanctions remain a secondary remedy, but it’s not taboo.  Although my student law review advocates note otherwise, the cotton decision emphasized that countries cannot simply jump straight to TRIPS-suspension whenever a country fails to comply with a WTO decision.  TRIPS is the WTO’s intellectual property agreement; allowing a country to suspend that agreement essentially permits legal piracy (pirated copies of I Know Who Killed Me for everyone!)  Although legal piracy sounds like the ulitmate punishment, you can’t engage in legal piracy anytime there’s an argument over grapes or cotton or undershirts. 

Cross-suspension is only allowed when suspension of the agreement involved in the dispute is inadequate.  Let’s say, for example, that the U.S. illegally subsidizes its cotton program at a cost of $100 million each year.  If Brazil imports $120 million in goods from the U.S. each year, it could only suspend concessions (i.e. impose tariffs) on those goods.  But if Brazil only imported $60 million each year, it could look to other agreements (like TRIPS) for the remaining $40 million.

Brazil essentially forgot to do that calculation.  That’s why the U.S. thinks it’s unlikely any retaliation “on the patents front” will happen in the near future: the size of U.S. exports to Brazil is almost guaranteed to be much higher than the subsidies paid to U.S. cotton producers.

Still, I found it interesting that the arbitrator rejected the U.S. argument that TRIPS suspension is inappropriate because of its “devastating consequences”:

The United States has suggested that the potential implications of a suspension of obligations under the TRIPS Agreement is also a consideration to be taken into account, in light of the “layer of uncertainty” that may arise from such suspension in the sectors concerned and the “potentially devastating consequences” of such suspension.  We recognize that there may be legitimate considerations to which the complaining Member should be attentive in applying any suspension of obligations under the TRIPS Agreement.  We are not persuaded, however, that this is a relevant consideration for us to take into account in reviewing the question of whether the “circumstances are serious enough” to justify suspension of obligations under that agreement.  

The U.S. wants another compliance panel.  The U.S. insists that it actually complied with the initial WTO judgment in Cotton, and the arbitrator’s decision was unncessary.  Some folks in the U.S. are now arguing that the U.S. should ask for another compliance panel.  Personally, I like that idea.  It works within the system and it might get a more favorable result.  I also think its a great sign that U.S. producers are not asking the U.S. just to say, “Screw the WTO.”  Instead, they’re playing by the rules.  Yay!

-Michael